Budget Impasse: Bad Politics Is Bad Economics
On Friday, the U.S. Senate voted to pass legislation — 54 to 44, strictly along party lines – that would fund the federal government through November 15, including the Affordable Care Act. This last bit comes despite the wholehearted effort of Sen. Ted Cruz (R-Texas), who spoke on the Senate floor for just more than 21 hours from Tuesday to Wednesday, and other conservative policymakers to defund the ACA. From the outside, the vote looks somewhat like the Senate passing a hot potato back to the House of Representatives, which initially passed a short-term budget that would defund the ACA.
As much as investors would like to put on blast goggles, keep their heads down, and avoid the political trench warfare that is once again coming to dominate Washington, the situation is impossible to ignore. Fiscal policy in the United States defines a massive amount of the backdrop against which investment decisions are made and investors — not to mention the public at large — can’t turn away from, even if they don’t want to look.
Why? If Congress fails to reach a temporary budget measure known as a continuing resolution by October 1, many nonessential parts of the government will shut down indefinitely. This will have a tremendous impact on the U.S. economy and, if prolonged, could bring the struggling recovery to screeching halt.